Interior Inspector General Misses Chance to Help Save USEITI

By Paul Bugala, Civil Society Member, USEITI Multi-Stakeholder Group on June 22, 2017

On June 7 and 8, the U.S. Department of the Interior was to host the
twentieth meeting of a multi-stakeholder group (MSG) focused on increasing
transparency in this country’s oil and mining sector through implementation
of the Extractive Industries Transparency Initiative (EITI) Standard. Those
meetings did not happen. A month earlier, the Interior Office of the
Inspector General (OIG) issued an assessment of the MSG’s efforts to
implement the EITI Standard. [1] The OIG’s report not only
failed to acknowledge why the MSG operations had been halted, but also put
a positive spin on a challenging situation at a time when the clear voice
of an inspector general would have been especially helpful.

Since 2012, the USEITI Advisory Committee, established under the Federal
Advisory Committee Act (FACA), has overseen the implementation of EITI in
the U.S. The USEITI MSG has published reports reconciling the payments of
oil and mining companies with U.S. Government receipts for the calendar
years 2013 and 2014. It has also prompted Interior to improve its payment
reporting. Like 52 other EITI implementing countries, the U.S. took these
steps in accordance the EITI Standard, which sets out the rules for MSG
functioning as well as the disclosure and reconciliation of payments.

In assessing that USEITI implementation is in compliance with seven of the
eight EITI Standard’s requirements, the OIG pointed out correctly that
Interior’s unilateral reporting and the development of the USEITI data
portal have been commendable. However, the OIG assessment ignores
shortcomings discussed by the USEITI MSG and its working groups that remain
obstacles to the initiative’s success.

For example, the report notes the refusal of many companies to disclose
their U.S. taxes in compliance with the EITI Standard. These include
current and former MSG members Chevron and ExxonMobil. However, the OIG
misrepresents the alleged legal obstacles to tax reporting, in a way that
can be read as letting companies off the hook for their refusal to report.
Chevron, ExxonMobil and other U.S. oil and mining companies’ unwillingness
to report taxes[2] is
particularly disturbing because several of these companies disclose tax
payments in compliance with laws in Canada[3] and the European Union. [4] Further, Chevron is part
of the EITI International Board. [5]

The report also fails to mention evidence provided by civil society MSG
representatives of bad faith demonstrated by the American Petroleum
Institute (API), a member of the USEITI MSG. A February 9 civil society
statement[6] outlines how API
undermined the progress and goals of USEITI by supporting [7]a
congressional resolution to nullify the Securities and Exchange Commission
(SEC) rule that outlines how U.S.-listed extractive companies are to
disclose payments made to governments for the development of oil, gas and
minerals. (The OIG report does not even mention Section 1504 of the
Dodd-Frank Act, the law which the SEC rule implements.)

As it happens, the law and its implementing rule are referenced in the EITI
Standard[8] and are
instrumental to USEITI implementation. In fact, the public notes of a
January 11 USEITI workshop, at which OIG representatives were present,
include the following references to the importance of Section 1504.

“Section 1504 reporting is necessary to ensure reporting by covered
companies meets the requirements of the EITI Standard.

. . .

The group discussed the intrinsic nature of Section 1504 to the USEITI
process and its equivalence to implementing legislation. As such, should
1504 be undone, USEITI would not have a path forward to implementation and
validation.[9]”

Interior’s own shortcomings also escape scrutiny in the OIG report. For
example, without MSG consent, Interior cancelled the remaining 2017 USEITI
MSG meetings on March 9. On the same day, Interior sent MSG members a
letter that thanked us for our involvement in USEITI, referenced the
release of the MSG-approved USEITI reports in 2015 and 2016 and then stated
“Building on your direction in December 2017, ONRR will complete a third
online report.” Interior has yet to explain publicly why it took these
actions, which undermine the USEITI process and make any action that
requires MSG approval impossible.

As a result, while on May 25 Interior posted a Federal Register Notice that
indicates the June 7 and 8 MSG meetings “will be rescheduled at a later
date,”[10] the USEITI MSG
is not functional at the moment. Therefore, contrary to what the OIG report
claims, the U.S. is not “actively” pursuing mainstreaming, as it requires
the involvement and approval of the MSG.

During the February 2017 USEITI MSG meeting, Deloitte, the USEITI
Independent Administrator, made a presentation titled “Mainstreaming
Feasibility In-Progress Update.” [11] The presentation
indicates that at the time Deloitte was in the progress of “completing a
feasibility study” of mainstreaming. The same slide indicates that MSG
approval of the feasibility study would lead to the need for MSG agreement
on a schedule for disclosure and assurance, which would form the basis for
a mainstreaming application. The same slide states, “MSG must approve an
application to the EITI Board seeking approval of the proposed workplan,”
which must in turn be approved by the International Board. On June 6,
Deloitte circulated a draft of the feasibility report for comment. However,
without a functioning MSG and its public meetings this document cannot be
approved and the subsequent mainstreaming steps cannot be taken.

On the point of mainstreaming, the OIG report states “(The) U.S. could be
in compliance with Requirement 4 (of the EITI Standard), even if full
reporting and reconciliation from the EITI international board is
considered questionable.” This statement is flawed logically and clearly
untrue. If the EITI International Board, particularly its Validation
Committee, were to find USEITI reporting questionable that would be the end of
the argument.

The OIG report also does not examine the evidence that the Federal Advisory
Committee Act (FACA) committee under which USEITI is organized is not fit
to the purposes of EITI implementation. In particular, a FACA committee’s
purpose is to provide advice to a federal agency’s secretary whom may or
may not act on those recommendations. This is not consistent with the
function of an MSG, as outlined in the Standard and EITI’s accompanying
guidance.[12]

Finally, the OIG report erroneously calls EITI a “voluntary initiative”.
This statement is contradicted by the EITI Web site’s frequently asked
questions[13], which states
that once a countries choses to implement EITI “all companies and
government agencies making or receiving payments must participate.” The
necessity of in-scope company reporting is also emphasized in a 2010 blog
post by the EITI International Secretariat’s Deputy Head [14].

My fellow USEITI civil society members and I are ardent supporters of EITI
and its implementation in the U.S., and we are proud of our MSG’s
accomplishments. I share this critique of the OIG report in the hope that
the USEITI MSG will be restored to proper working order and will continue
to provide the thorough and public natural resource payment transparency so
greatly needed in the U.S. today and in the future.

(Paul Bugala has been a civil society member of the USEITI
multi-stakeholder group since its inception in 2012.)